[DK Goyal] Q 1 Capital and Revenue Solutions CBSE (2022-23) Class 11

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Q 1 Solutions of Capital and Revenue DK Goyal class 11 CBSE 2022-23

Question – 1

State with reasons whether the following are capital or revenue expenditures:

1. A new machine is purchased for ₹ 60,000, ₹800 were spent on its carriage and ₹1500 was paid as wages for its installation.

2) A sum of ₹ 10,000 was spent on painting the new factory.

3) ₹ 5,000 paid for the erection of a new machine.

4) ₹ 2,000 were spent on repairs before using a second hand generator purchased recently.

5) ₹ 1,500 were spent on the repair of a machinery.

6) ₹ 10,000 was paid as brokerage on issue of shares and other expenses of issue were ₹ 25,000.

Solution:-

i) ₹ 800 spent on the carriage and ₹ 1,500 paid as wages for the installation of the machine are capital expenditures and will be debited to the Machinery Account because the expenses have been incurred in relation to the purchase of a new machine.

ii) It is a capital expenditure and will be debited to the Factory Building Account because it is incurred before the beginning of the use of the Factory.

iii) It is a capital expenditure and will be debited to the Machinery Account.

iv) It is a capital expenditure and will be debited to the Generator is put to use.

v) It is a revenue expenditure because it is a normal and regular expenditure incurred with a view to maintaining the machinery. Hence it will be debited to the Profit and Loss Account.

vi) ₹ 35,000 are capital expenditure because they are incurred in connection with the formation of the company.